Beef Tips: Right attitude helps in market, business decisions

A YEAR ago, this column focused on the turmoil in the cattle market. I highlighted the reality by noting that, no matter where you went, you were likely to encounter a discussion about the market.

Dr. Nevil Speer

December 1, 2016

4 Min Read
Beef Tips: Right attitude helps in market, business decisions

*Dr. Nevil Speer is based in Bowling Green, Ky., and serves as vice president of U.S. operations for AgriClear Inc., a wholly owned subsidiary of TMX Group Ltd. The views and opinions of the author expressed herein do not necessarily state or reflect those of TMX Group Ltd. and Natural Gas Exchange Inc.

A YEAR ago, this column focused on the turmoil in the cattle market. I highlighted the reality by noting that, no matter where you went, you were likely to encounter a discussion about the market.

For the beef industry, the market was a story of success in 2014, but the market also was "the story" in 2015 — an ugly story that will undoubtedly be etched in most everyone's memory for some time to come. On the backside of that market action came a need to reassess how business would be done going forward.

Unfortunately, not much has changed since that time. While there may have been widespread hopes for recovery, 2016 has only reinforced market action to the downside.

The market seems to be running on a perfect parallel to 2015 — but at a lower tier. Since March, when fed cattle traded at nearly $140/cwt., the market has been steadily grinding lower. October marked the seventh consecutive month in which the average fed price was softer than the previous month. Meanwhile, the CME feeder cattle index is currently chopping around the mid-$120s — down about $40/cwt. from the start of the year.

None of that is news, as most readers are aware, at least to some degree, of the challenges in the cattle markets. However, the discussion provides some context about how punishing this extended run has been for producers. It highlights the importance of decision-making in this type of business environment.

Recently, as I was pondering some of the implications for the producer segment, I was reminded of a pertinent commentary from BEEF contributor Dr. Harlan Hughes back in late-2003. Hughes provided a discussion about producer attitudes and adjustments following the bovine spongiform encephalopathy (BSE) fallout in Canada.

Most important, Hughes pointed out that there was a sharp contrast in how producers were responding to the BSE situation (which was especially challenging for Canadian producers).

On one side were individuals who realistically recognized their inability to manipulate external influences. They subsequently increased their focus on various factors within their control — namely, reducing the unit cost of production and improving value-focused marketing strategies, both of which are important steps in risk management.

Conversely, individuals on the other side focused on the many factors outside their control, impatiently waiting on the market to recover and continually emphasizing a desire to have everything back to "the way it was before."

Why can't it just be like it used to be?

That's the wrong question to ask, and Hughes pointed out that such a focus is self-defeating. Rather, the right approach is to remain disciplined yet versatile, embracing the mindset that change is the only constant.

Accordingly, despite the challenging conditions, the group that focused on factors within their control was inherently more empowered and felt more hopeful about the future. That equates to better decision-making regarding both markets and one's business in general.

No one enjoys volatile markets. They're tiring, nerve-wracking and can be downright defeating. Still, it underscores how important perspective can be when working in this type of environment.

That leads to three questions to ensure a proper strategy going forward:

1. Do you have a plan?

2. No, really, do you have a plan?

3. Do you have the discipline to follow through with that plan?

The absence of a meaningful plan leaves decision-making susceptible to emotion, especially negative, non-constructive emotion, and the plan is only effective if you're willing to follow it.

Scott Peck, in his great book, The Road Less Traveled, discusses how many people see the beginning and envision the end — but they're unwilling to go through the middle; they lack the discipline to follow through.

More applicable to our business, many risk managers voice a parallel phenomenon when it comes to marketing: the persistent cancel-if-close mentality — a failure of discipline in which the plan gets aborted along the way despite well-established targets.

My October 2015 Beef Tips column also focused on the market. I noted that balancing various risk management decisions, including reducing debt, managing costs, etc., looks different for every operation depending on a number of variables, but it's an essential exercise to ensure the success of the business.

Moreover, higher prices at the time were altering the underlying capital requirements to maintain normal business operations, so planning for the "what if" events was more important than ever.

The title of last December's column was "Managing Costs Key for Beef Operations," while the October column's headline was "Manage External Risk to Stay Afloat." Given that management theme, the proper title here just might be: "Managing Yourself Essential to Business Success."

Volume:88 Issue:12

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